Question

Company X and Company Z are related companies subject to consolidation. On 1/1/19, Company X sold machinery to Company Z for $50,000 cash that had an original purchase price of $150,000, useful life of 10 years, accumulated depreciation at the time of sale of $60,000, and was expected to be continued to be depreciated at $15,000 per year had it not been sold. Company Z placed the machine in service on 1/1/19, and is depreciating it over 2 years using straight-line depreciation. The portion of the elimination entry at the time of consolidation to account for any required adjustment to the equipment account would be:

Question 19 options:

	a) Debit to Equipment of $100,000
	b) Debit to Equipment of $50,000
	c) Credit to Equipment of $50,000
	d) Credit to Equipment of $100,000

Company R purchased 100% of the outstanding common stock of Company S for $1,500,000. The FMV of the net assets of Company S was $1,400,000, and the BV of the net assets of Company S was $1,300,000. The amount of gain recognized by Company S on this transaction would be:

Question 22 options:

	a) $200,000
	b) $100,000
	c) $0
	d) $1,500,000

Answer 1

Q 1: Debit to Equipment of $100,000.

Explanation:

We have to eliminate any effect of that transaction and return the original cost ofthe asset to where it was before any sale was made. By selling the machine for $50,000 the new cost of the machine onthe books would be $50,000 when it should be the original cost, $150,000. As such, we need to debit machinery for$100,000 to bring that balance back up to where it should be.

Q 2: The amount of gain recognized by Company S on this transaction would be:

C. $0